Buyout shops continued to tip-toe back into the deal market in the first quarter, encouraged by a stabilizing economy and thawing credit markets.
U.S.-based buyout firms closed 147 deals worldwide in the first three months of 2010, marking a healthy jump from the 121 closed in the final quarter of 2009 and the 120 deals closed in the first quarter of 2009, according to Thomson Reuters, publisher of PE Week.
Disclosed total deal value reached $11.7 billion for the quarter. That was up more than 50% in comparison to the same three-month period last year, but down from the $25 billion in the fourth quarter of 2009. The high fourth-quarter tally last year was highlighted with the $11 billion takeover of auto parts supplier Delphi Corp. by Elliot Management Corp. and Silver Point Capital and the $2 billion buyout of Internet phone company Skype Technologies SA by a group of investors led by Silver Lake Partners.
Meanwhile, the pipeline of deals has continued to grow in 2010, indicating the deal market has momentum. Buyout shops announced 189 deals in the first quarter, which includes both closed and pending deals, up from the 161 deals announced during the same period last year.
“I’m very pleased with where we are,” says Mark Bradley, the global head of financial sponsor coverage at
Lawrence Golub, president of mid-market lender
The most popular sectors for buyout shops in the first quarter remained technology, consumer products and services, and industrials. Add-on deals also remained popular, accounting for nearly half of deal volume, as buyout shops continued to build on to their portfolio companies in anticipation of exits down the road.
Carve-outs accounted for only about 2.5% of deals, down from 9.1% in the fourth quarter. This could reflect improvement in the economy, which has strategic buyers feeling less pressure to generate cash by selling non-core assets, says Tom Avery, head of the financial sponsors group at investment bank Raymond James. “Carve-outs are also notoriously hard to do, so the PE guys may be focusing their efforts on the more robust and better quality deal flow elsewhere.”
The largest deal of the quarter, the buyout of IMS Health (for $5.1 billion by TPG and Canada Pension Plan Investment Board) was financed with high-yield debt, a financing tool that wasn’t deployed in a single sponsor deal in all of 2009. —Bernard Vaughan and Ari Nathanson